Question

A company can create anticipated earnings per share (EPS) growth through leverage and stock repurchases. What are 3 other ways a firm can have anticipated earnings per share(EPS) growth without adding value

Answer 1

Answer-

Other ways of determination of earning per share growth-

1) Estimates made by Expert or Professionals or analyst- This is the way to to determine the growth rate of earning per share without adding value. Analysts are the employee of the financial institutions who sniff through every available information that is known about a company and then make a prediction about how well they expect the performance of the compnay in next few years.

2) Historical Growth Rate- Another way to get an idea of the future growth potential of a company is by looking at how fast the compnay has been able to grow its earnings over the last few years.

3) Return on Equity-(ROE)- Return on equity provides a simple metric for evaluating returns. By comparing a company's ROE to the industry's average, something may be pinpointed about the company's competitive advantage. ROE may also provide insight into how the compnay management is using the financing from equity to grow the business. Furthermore, it is useful to compare a firm's ROE to it's cost of equity. A firm that has earned a return on equity higher than its cost of equity has added value and vice versa.